February 2013

The 2013 Foreign Investors’ Guide to

Real Estate Transactions

in the Philippines
A complex system of laws, rules and regulations apply to real estate and real estate transactions
in the Philippines. Key prohibitions on the ownership and disposition of lands are found in our
organic law (i.e. the 1987 Philippine Constitution) while incentives and other regulatory
mechanisms for the sale, purchase, lease and ownership of different types of real estate are
scattered in various statutes and regulations. Local governments also regulate the ownership
and disposition of real estate through various locality specific ordinances.
The legal complexity coupled with the absence of a unified system of laws and regulations that
govern real estate transactions in the Philippines have made navigating the real estate
landscape difficult and challenging. Admittedly, the difficulties and challenges are even more
pronounced where foreign nationals and/or foreign companies are involved in the deal.

Owning Lands in the Philippines

The ownership of private lands in the Philippines is reserved to Philippine citizens and Inside this guide
corporations that are considered Philippine nationals. The reservation to Philippine citizens
and Philippine nationals of the right to own private lands is enshrined in the 1987 Philippine Owning Lands in the
Constitution. Corollary, foreign nationals and foreign companies are prohibited from owning Philippines
private lands in the Philippines and, the willful violation of these prohibitions is, in some Owning Real Estate other
instances, considered a criminal offense punishable by fines and imprisonment. than Lands
However, foreign nationals and foreign companies may indirectly own private lands in the Typical Real Estate
Philippines by taking a minority interest (and only up to the extent of 40%) in corporations that Transaction Structure
are considered Philippine nationals. The Philippine Foreign Investment Act (as amended) and
The Preliminary Step—Due
prevailing jurisprudence provide that for as long as the percentage of Filipino ownership in the
Diligence
capital stock of a corporation is at least 60% of the total capital stock entitled to vote in the
election of directors of the corporation, the corporation is considered a Philippine national  Dealing with Registered
under Philippine law and may thus own private lands. Owners

As an alternative to owning private lands, foreign nationals and foreign companies may, subject  Liens and Encumbrances
to the provisions of the Philippine Condominium Act, also own condominium units in attached to Real
condominium projects registered with the Philippine Housing and Land Use Regulatory Board. Property
The term “condominium” in the Condominium Act is broadly defined and applies to commercial
buildings.  Other Legal
Requirements for the
Foreign nationals and foreign companies may also lease land. However, lease terms are Transfer of Land
regulated by law. A lease term that is unduly long will be viewed by Philippine courts as akin to Documenting the Transaction
virtual ownership of the leased land and this is prohibited.
Taxes and Other Expenses
As a general rule, a lease taken by a foreign national or a foreign entity can be for a term of 25
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About SyCip Salazar
Hernandez & Gatmaitan
Founded in 1945, SyCip Salazar
Hernandez & Gatmaitan
(SyCipLaw) has developed a
leading expertise in real estate
transactions. Such experience
in real estate practice covers
the simplest portfolio purchase
to more complex deals and
transactions, with clientele that
range from individuals and
major real estate developers to
foreign governments.
The firm has assisted land
developers on a variety of
enterprises including industrial
parks, recreational projects
such as golf courses, and joint
ventures for multi-use projects.
The firm acted as counsel to the
consortium that acquired
majority of the shares in Fort
Bonifacio Development
Corporation, the owner and
developer of prime lands
converted from military use
under the Bases Conversion
Act. The firm advised the
Government of Singapore in its
investment in RCBC Plaza, the
first vertical information
technology ecozone.
The firm has acted for a joint
venture company for the
development of a proposed
three-tower residential
condominium project. Situated
in Quezon City in the heart of
Metro Manila, this medium-
range residential condominium
project expects its target
market to include working
couples who need a city home
2
(Continued from page 1)
years and may be renewed for another 25 years. The Philippine Investors’ Lease Act allows the
long-term lease of private lands by foreign investors, subject to certain terms and conditions,
for the purpose of establishing industrial estates, factories, assembly or processing plants, agro-
industrial enterprises and other similar endeavors. This law allows for a maximum lease term
of 50 years renewable for another 25 years. A lease under the Investors’ Lease Act is required
to be registered with the Philippine Department of Trade and Industry.
Foreign companies that locate in government designated economic and industrial zones may
also enter into lease agreements with a maximum lease term of 50 years renewable for another
25 years. The ownership of private lands in the Philippines is reserved to Philippine citizens
and corporations that are considered Philippine nationals. The reservation to Philippine
citizens and Philippine nationals of the right to own private lands is enshrined in the 1987
Philippine Constitution. Corollary, foreign nationals and foreign companies are prohibited from
owning private lands in the Philippines and, the willful violation of these prohibitions is, in
some instances, considered a criminal offense punishable by fines and imprisonment.
Owning Real Estate other than Lands
Since the prohibition in the 1987 Philippine Constitution only pertains to private lands, foreign
nationals and foreign corporations may also take a 100% interest in buildings, machineries and
other forms of real property other than lands.
While the general rule in Philippine law is that the ownership of real property adhered to land
follows the ownership of the land, separate legal title over other forms of real property adhered
to the land may be perfected and separated from the land where such are situated.
Typical Real Estate Transaction Structure
In light of the foregoing restrictions, a plain vanilla real estate transaction structure involving
the entry of a foreign investor will typically involve a foreign national or foreign company
taking a leasehold right over a parcel of land (with the maximum term permitted by law) and
the full title to the buildings and other real property located on the land.
In some instances if the land is owned by a corporation that is a Philippine national, the foreign
national or foreign company also takes the 40% ownership interest in the corporation that
owns the land.
Foreign nationals and other foreign companies seeking to invest in real estate in the Philippines
have a host of other structuring options for their investment. Construction projects for office
buildings for instance may be constituted under the Philippine Condominium Act to allow
foreign nationals and foreign entities to own specific areas in a building and at the same time,
an aggregate of up to 40% ownership in the land.
Foreign investors intending to buy or lease property in the Philippines for purposes of
establishing business or commercial operations in the Philippines also required to obtain a
“license to do business” from the Philippine Securities and Exchange Commission.
Various investment vehicles are available to foreign investors and the appropriate investment
vehicle will generally depend on the specific needs, the plans and the business model of the
investor.
The Preliminary Step – Due Diligence
Foreign nationals and foreign companies are advised to seek legal representation and retain
property advisors before entering into real estate transactions in the Philippines. Legal
advisors can be retained to help identify legal risks and issues that may help foreign investors
decide on whether or not to proceed with a particular real estate transaction. Property advisors
can help guide foreign investors on commercial issues such as the purchase price for a parcel of
land or the lease rate.
Some key legal issues that a foreign investor needs to face when dealing with real estate and
which a legal advisor can identify in the course of a due diligence examination include:
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(Continued from page 2)

Dealing with Registered Owners during work days, families who

need a city dwelling for
Foreign investors should ensure that they are dealing with registered owners of the property. A
person claiming ownership over land or other forms of real property should be able to present children who study in the
documents evidencing his/her title to such property. university, and starting families
who demand the convenience
Ideally, the ownership of private lands should be evidenced by a transfer certificate of title in
of proximity to work and
the name of the registered owner. Registered owners retain an “Owner’s Duplicate Copy” of the
transfer certificate of title while the state, through the Philippine Land Registration Authority, leisure. The deal structure is
retains the original copy of the title. interesting because of the
nationality restrictions on
The copy retained by the state is the controlling copy of the title and it is advisable that a
certified true copy of the title retained by the Land Registration Authority be inspected prior to ownership of private land and
any real estate transaction. the commercial agreement of
the partners on economic
Condominium units in real estate constituted as a condominium project pursuant to the
Condominium Act are covered by Condominium Certificates of Title issued by the Land matters. The firm has also
Registration Authority. advised a joint venture
company formed by PBCom
Certain parcels of private land in the Philippines are not covered by transfer certificates of title.
Possessors of these types of lands usually obtain a tax declaration (issued by the local and Filinvest on the
government of the area where the land is situated) as proof of their ownership of the lands. construction of PBCom Tower
in Makati City.
The ownership of buildings and real property other than land is evidenced by a tax declaration
setting out such buildings and machineries owned by the registered owner. Typically, where
the land and the buildings are owned by the same person or the same entity, only one tax
declaration is obtained for both the land and the buildings standing on the land.
For More Information
Liens and Encumbrances attached to Real Property
Please contact your account
A foreign investor that purchases real estate takes title thereon subject to the liens and partner or the authors of this
encumbrances that have been previously registered or annotated in the transfer certificate of Guide:
title covering the land. For instance, a mortgage over the land constituted by the previous
owner may be foreclosed even where, in the meantime, title to the land had passed on to a new
owner. The term of registered real estate leases must also be respected by a transferee or buyer
of the land. Emmanuel C. Paras
Head, Corporate Services
In addition to being the most reliable proof of ownership of private lands, the copy of the Land
Registration Authority of the transfer certificate of title covering a parcel of land will contain all ecparas@syciplaw.com
registered encumbrances affecting the land. Certain liens and encumbrances may be registered
without the consent of the owner of the land. Thus, the Owner’s Duplicate Copy may not contain
all registered liens and encumbrances that affect the land. John Paul V. de Leon
In some instances, liens and encumbrances are also registered and annotated in the tax Associate
declaration that covers the real estate. jpvdeleon@syciplaw.com

Property owners may have agreed to certain contractual restrictions with respect to property
registered in their name. Contractual restrictions which have been annotated in the transfer
certificate of title are binding on the subsequent owner of the land. Typically, certain financing SyCipLaw Center
arrangements will require property owners to obtain the prior consent of banks before 105 Paseo de Roxas,
transferring or selling encumbered or mortgaged property. Building height and use restrictions
Makati City 1226 Metro Manila
are also registered on titles to the land.
The Philippines
The technical description of the land or the condominium unit appears in the transfer Tel.: +632 982-3500
certificate of title or in the condominium certificate of title, respectively.
Fax: +632 817-3896
Other Legal Requirements for the Transfer of Land Email: sshg@syciplaw.com
Web: www.syciplaw.com
Other legal requirements may affect the ability of an owner to sell or transfer real estate or the
ability of the buyer to obtain registered title to the land. Generally, this depends on the nature
of the real estate.

(Continued on page 4)
3

Publisher’s Note
The 2013 Foreign Investors’ Guide
to Real Estate Transactions in the
Philippines is published by the
Corporate Services Department
of SyCip Salazar Hernandez &
Gatmaitan. It is intended as a
general primer on significant
statutes and regulations that
affect real estate transactions in
the Philippines and contains only
general information current as of
15 February 2013. Since key
prohibitions are linked to the
nationality of the entity that will
hold title to land, the Guide
approaches the real estate
landscape from the perspective
of foreign nationals and foreign
entities seeking to invest in real
estate. Readers are cautioned
that matters set out herein do not
constitute, and should not be
relied upon as, legal advice.
Entities or persons interested in
investing in real estate in the
Philippines or those who will be
involved in real estate
transactions in the Philippines
are encouraged to seek specific
legal advice with respect to their
transactions.
To access other firm resources,
please visit the SyCipLaw website
(www.syciplaw.com).
To receive updates from the
firm by email, subscribe to the
SyCipLaw e-bulletin at http://
eepurl.com/s_aXn.
Image on cover courtesy of Microsoft
Corporation.
(Continued from page 3)
Legal requirements that may apply in some instances are as follows:
 Philippine law requires the consent of both spouses before property considered as
conjugal in nature is encumbered or alienated. As a general rule, the sale or encumbrance
of property without the consent of one of the spouses is void.
 Transactions which will result in the sale of all or substantially all of the property of a
Philippine company require shareholder consent.
 Buildings designed and/or constructed by a Philippine national artist and buildings which
are at least 50 years old are presumptively classified as Philippine cultural property and,
under the National Cultural Heritage Act, may not be sold without prior clearance from
Philippine cultural authorities.
 The sale of condominium units must be accompanied by a Condominium Certificate of
Management issued by the condominium corporation that holds title to the land. The
certificate attests that the sale of the unit to a foreign investor will not result in a breach of
the required ownership limitations for corporations owning lands in the Philippines.
 Lands previously covered by the Comprehensive Agrarian Reform Act (as amended) and
which have been awarded to farmer beneficiaries cannot be sold for a period of 10 years
from the date of the issuance of the Certificate of Land Ownership Award. Such lands are
classified as agricultural and cannot be used for other purposes unless reclassified by the
Philippine Department of Agrarian Reform. No person can own more than 5 hectares of
lands that are classified as agricultural.
Transferees of lands will be required to present a real property tax clearance issued by the local
government of the place where the property is located before a new title is issued by the Land
Registration Authority. The registration of the transfer of the land will not be allowed unless all
unpaid realty taxes are paid.
Documenting the Transaction
Certain formalities are required to be observed in the sale of real estate. The absolute sale of
real property should be made through a public instrument. Philippine law also mandates a
specific form of notarial acknowledgement where the real property subject of the sale is
covered by two or more transfer certificates of title. Documents of sale executed and
acknowledged outside of the Philippines should be presented to a Philippine Embassy for
authentication.
A Certificate Authorizing Registration issued by the Philippine Bureau of Internal Revenue will
be required before the Land Registration Authority can issue a new transfer certificate of title
in the name of the transferee.
Taxes and Other Expenses
The sale of real estate that is considered a capital asset will attract a capital gains tax equivalent
to 6% of the purchase price or the zonal value of the property, whichever is higher. Where the
real estate is an ordinary asset, the income of the seller or property owner is recognized as
ordinary income subject. The sale of real estate considered as an ordinary asset is also subject
to value added tax equivalent to 12% of the purchase price.
The execution of the document evidencing the absolute sale of the real estate will attract a
documentary stamp tax equivalent to approximately 1.5% of the purchase price. Local
governments also impose a local transfer tax equivalent to approximately 0.5% of the purchase
price on the sale and transfer of the property.
The registration and issuance of a new title in the name of a transferee of the real estate is
subject to registration fees amounting to approximately 0.25% of the purchase price. 